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US Automakers Struggle as Restructuring Deadline Looms

Detroit automakers are finalizing theirsurvival plans for the U.S. Treasury as the Obama administrationreadies its plan to oversee the depressed auto industry.

The Obama administration has decided toset up a panel to oversee the industry’s restructuring. It will beled by U.S. Treasury Secretary Timothy Geithner and the head ofPresident Obama’s economic council, Lawrence Summers.

David Axelrod, a top advisor to thepresident, says all stakeholders must take part in the autoindustry’s restructuring.

“There are millions of livelihoods thatdepend on it – not just at the auto companies, but at the spin-offmanufacturers and auto dealers and so on,” said David Axelrod. “Sowe have a real interest in seeing the auto industry survive. And itis going to require a major restructuring.”

The industry, which has lost billions ofdollars during the past three years, borrowed more than $17 billionfrom the government in December. As a condition for the loan,General Motors and Chrysler must submit detailed plans on Tuesdayfor regaining competitiveness against European and Asianrivals.

Jack Fitzgerald, who runs several cardealerships near Washington, says it is clear what the industrymust do.

“What they have to do to be competitiveis: managers have to be paid what the competition pays it managersand labor has to be paid what the competition pays its labor,” saidJack Fitzgerald.

The cost structure of US-based carcompanies is higher than for European or Japanese firms.

Fitzgerald is critical of the leadershipof the U.S. carmakers. He wonders why the Detroit firms need moretaxpayer money when dealers have already paid them for the tens ofthousands of cars that are in showrooms waiting to be sold.

“It truly is becoming like a Ponzi scheme[a fraudulent pyramid operation],” he said. “Look at Chrysler.Chrysler has 400,000 unsold cars in the field [at dealerships] andthey’ve been paid in full for all of them. Where’s the money? Thesuppliers are not getting paid and the factories have been paid infull for their production.”

Fitzgerald says if any of the Detroit “BigThree” automakers – General Motors, Ford and Chrysler – goesbankrupt, the ripple effects across the country will be huge – notonly factory workers, but also dealers and the banks who lend tothem would be directly affected.

Economists estimate that the bankruptcy ofeven one U.S. automaker would cost least one million jobs. TheAmerican car market is in its worst sales slump in decades. But notall of the news is bad. Some dealers report that sales in Januaryand thus far this month are above December’s depressed level.